2008 Electricity Distribution Maintenance Summit Stream 3A: Funding, Investment and Financial issues 10 June 2008 Theo van Vuuren Divisional Executive South African Operations Development Bank of Southern Africa

Background Challenge as stated in the objectives of this summit to seek solutions to the challenges in the distribution sector and to form through partnerships to achieve a sustainable outcome DBSA's role is to promote socio-economic development, upliftment of our people and stimulating growth –Main focus is on investing in the provision of sustainable infrastructure –Role of financier, advisor, integrator, implementor, partner DBSA focus on investment support to both public and private sector,with a focus on:

Need for growth in economy –Maintain asset base: Estimates backlog in maintenance by public authorities:R5 billion upwards –Est. for universal electrification vary widely i.e. R21.5 billion for 3.4 million household connections by 2013, plus R10.8 billion for bulk infrastructure and refurbishment

4 0.9 mil 0.2 mil 1.1 mil 0.5 mil 0.2 m 0.4 mil 0.1 mil 0.9 mil Backlogs per provinces higher than the national average 2007 indicated on map South African Operating Environment: needs and opportunities 10.4%38.4% National average backlogs Water 1.4 million Refuse 4.7million Electricity 2.4million Sanitation 1.3million Housing 3.7million Areas of economic growth 20.0%11.4% 29.5% % 26% 16%19% 17%13%81% 18% 24% 58% 29%21% 48%40% 46%26% 35% 30% 60% 14% 24% 16% 29% 13% 26%19%11% 17% (Household numbers)‏

Key Challenges Supply side: –Growth in demand is outstripping supply (4% p.a.) - mainly driven by high industrial and population growth –Insufficient infrastructure to deliver energy services –Deteriorating quality of supply mainly due to: ageing equipment, inadequate maintenance, skills base and institutional capacity Distribution side: –High level of technical and non-technical losses in the distribution system \ –Slow progress on industry restructuring –Limited capacity on especially municipal levels –Structural issues: municipal financial viability Enabling policy, legal and regulatory environment required to attract private participation in energy sector investments Significant investment is required for power generation, transmission and distribution Capacity building Universal access may not be achieved by 2013………

DBSA role: INVESTMENT SUPPORT –Create a balance between commercially viable and socially desirable investments –Broadening pool of role players: BBBEE e.g. through IPP project funding –Support delivery of access to basic energy services: mainly through municipalities (More than 1 million households benefited from various projects during 07/I8)‏ –Financial structuring –Increase pool of funding –Application of strict sustainability criteria in funding projects

Examples of investment support

DBSA’s Role: Technical support Available as partner in funding technical studies, pilots, development of plans and solutions. –e.g. Darling Wind Farm, SAPP 2007 to conduct Regional Tariff Study –Grant funding for research and feasibilities Siyenza Manje deployees on municipal level Advisory function to role players –Best practice, development information Key issue: –Internal assignment to investigate ways to support municipalities to be financially sustainable with reduction in income from lower electricity consumption –Innovation and alternative sollutions

Conclusion Affordable energy services can contribute towards poverty alleviation Significant investments required to meet increasing demand Pooling of technical and financial resources is key to addressing investment requirements Support initiatives to accelerate project implementation Explore opportunities for both grid and off-grid electrification technologies Strengthen partnerships & co-funding with local government agencies Need for innovative approaches and financing models for distribution projects